The indicator problem nobody talks about
If you use an indicator based purely on price to generate buy and sell signals, you need to be lucky to make consistent money from it. The reason is straightforward: price changes before the indicator does. The indicator is derived from price, so by definition it is always reacting to something that has already happened. It cannot get ahead of the move — only confirm it after the fact.
And if you follow your indicator rigorously — which you have to, otherwise there is no point having it — you will eventually face this situation: the indicator turns down, you sell, and then price reverses and goes up without you. What do you do then? Chase it back in at a higher price? Wait for the next signal and miss the move? There is no clean answer, because the tool gave you an imprecise signal to begin with.
This is not to knock indicators. It is a question of what they actually measure — and most traders never ask that question.
The real question to ask about any indicator
Most traders and investors use indicators to generate signals directly. Buy when this crosses. Sell when that turns. Add a second indicator for confirmation, then a third. The result is usually conflicting signals, late entries and a system so complicated it is impossible to know what is actually working and what is not.
The question most traders ask is: does this indicator give good signals? The question they should be asking is: what does this indicator actually measure?
If an indicator is simply transforming price into another form — smoothing it, comparing two moving averages of it, measuring how fast it has moved — then it will always lag behind the underlying cause of the price movement. It is describing the symptom, not the disease.
If an indicator measures something that actually drives price — supply and demand, volume behaviour, the balance between buyers and sellers — then it has the potential to tell you something price has not yet shown. That is a fundamentally different kind of tool.
“The issue is not that indicators lag. Everything lags to some degree. The issue is that most indicators measure price — and price is already the last thing to move. Volume moves first. Sentiment moves first. The indicator built on price is twice removed from the cause.”
What volume behaviour actually shows — a real example
The chart below shows Bitcoin from May to August 2021 — a sustained downtrend that wiped out a large number of traders who were following price-based indicators. The price was making lower highs and lower lows. Every momentum indicator was negative. Every moving average was pointing down. The “signal” from any price-based tool was the same: stay out or stay short.
But the panel beneath the price tells a different story. This is Elder’s Force Index — an indicator that multiplies volume by the price change on each candle. It is measuring effort, not just direction. In the middle of May there was a large spike down — heavy selling volume driving price sharply lower. That selling was real and significant.
But within a few weeks something changed. The Force Index began recovering — moving back toward its zero line — even as price continued to trend down. What this was showing was that buying volume was beginning to absorb and outweigh the selling. The sellers were still active, but they were meeting increasing resistance. By the time we reached the third week of July, the Force Index crossed above its zero line. The downtrend in the indicator had reversed even before the price made its move.
That crossing of the zero line in late July was a genuine opportunity — not because the Force Index is a magic signal generator, but because it was reflecting a real shift in the balance between buyers and sellers. At that point, whether you were using a moving average, a stochastic or any other method, the volume analysis was telling you the same thing: an up move in price was developing. The indicator confirmed what the underlying market mechanics had already established.
Indicators should inform your thinking, not replace it
The way to use indicators well is not to follow their signals blindly. It is to understand what they measure, use that understanding to read what is developing beneath the surface, and then let that context guide how you interpret whatever other tools you use.
A moving average crossover on its own is a weak signal. A moving average crossover supported by volume behaviour showing genuine accumulation is a much stronger one — because now you have two independent pieces of evidence pointing in the same direction, and one of them is measuring the actual cause rather than the effect.
Indicators are not the problem. The way they are used is. Used correctly — as a window into what is driving price rather than a substitute for understanding it — they become genuinely useful. Used as a signal machine, they will always be one step behind the market they are trying to read.
This article is for educational and informational purposes only and does not constitute financial advice or a recommendation to buy or sell any asset. All trading and investment carries risk. Do your own research and never invest more than you can afford to lose.
More on the methodology behind this site
The analysis on this site is built on volume behaviour and supply and demand — not price-derived indicators. The methodology page explains the reasoning in full.Read the methodology